The 'New Keynesian' Phillips curve: Closed economy versus open economy

Assaf Razin, Chi Wa Yuen*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

The paper extends Woodford's [Optimizing models with nominal rigidities, Chapter 3 of Interest and prices: foundations of a theory of monetary policy, Princeton University, 2000; unpublished manuscript] analysis of the closed economy Phillips curve to an open economy with both commodity trade and capital mobility. We show that consumption smoothing, which comes with the opening of the capital market, raises the degree of strategic complementarity among monopolistically competitive suppliers, thus rendering prices more sticky and magnifying output responses to nominal GDP shocks.

Original languageEnglish
Pages (from-to)1-9
Number of pages9
JournalEconomics Letters
Volume75
Issue number1
DOIs
StatePublished - Mar 2002

Keywords

  • Capital mobility
  • New Keynesian
  • Phillips curve
  • Trade

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